If you plan on living, inflation matters to you


The standard rule of thumb is that the value of your dollars are cut in half every 20 years. That’s due to inflation, and if you calculate it at a reasonable 3.5% annually, it becomes 98.98% over two decades.

Here’s what it’s been in my lifetime. It’s expected to be at least that much.

You can see it for yourself and play with the numbers at plenty of free websites, here’s the one I’m using:

Juggle those numbers and note that at 5.65%, it gets cut by 2/3rds with a cumulative 200% inflation rate. Meaning that what it takes $100 USD to buy today, it would take $300 to buy in 2041. Or at 7.18%, it gets cut by 3/4ths with a cumulative 300% inflation rate. Meaning that same hundred bucks today would get you a quarter of what you’d think 20-years into the future.

Most people in the US looking back only 20 years would laugh at rates like that, because it hasn’t happened in that time. But it did before, here are the 20 years from 1971-1991. Maybe, like me, you remember most of those. That period had an average inflation rate of 6.30% and cumulative inflation of 236.34%.

And it could actually get much worse than that as currencies inflate themselves out of existence. It happens all the time throughout time, and in fact it eventually happens to every currency. It just hasn’t happened to our precious USDs yet is all.

This comes to mind as I’m trying to figure out some kind of personal savings equations. How do I save enough to compensate for the value halving between now and when I’d traditionally be eligible for retirement?

The answer is clear. I don’t, and most likely neither do you. Hmm.

I’m a “don’t wager more than you can afford to lose” kinda guy. So while I’m fine to wager on speculations, there’s a certain baseline that I ain’t gonna mess with. For that minimum amount, I don’t hold it to grow it, I hold it to keep it secure. At this point with all that’s going on in the world, and the fact that nearly every asset is priced at record highs, nothing looks like a good wager to me. So my baseline can’t stay in dollars. More on that coming soon.

How do you interpret all this stuff? Do you just put your head down and try not to worry about it or what?